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Would I have to form an LLC to do freelance logo design and web design and development through sites like Guru and Elance? This business doesn't sound very risky so could I get away with forming a sole proprietorship? Since I'd be accepting payments online (and could potentially only allow payments through my personal Paypal account) would I even have to form a business at all?

I just formed an unrelated LLC and in Massachusetts it costs $500/year to do so, so I'd like to avoid it if possible.

Thanks!

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Would I have to form an LLC to do freelance logo design and web design and development through sites like Guru and Elance?

Legally, you do not. As you know, the purpose of the LLC is to protect your personal assets from liability, not to qualify you to do business.

This business doesn't sound very risky so could I get away with forming a sole proprietorship?

None of us can make that subjective judgment for you given the current amount of information, especially if it constitutes legal advice. However, from my experience I can say most lawsuits in the field you're working in arise from intellectual property disputes (e.g. trademark and copyright infringement) so think about whether you'd be stepping on anyone's toes in that regard. One example of a possible suit is if your design outcome is similar to that of someone else's and they sue you for trademark infringement. Another example could involve a dispute over the ownership of the design you created for your client, especially if s/he pays for some of your services but suddenly aborts payment.

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Thank you Henry! I am surprised that those freelance sites (like Guru and Elance) don't provide any protection to developers. – nickelpickle May 21 '12 at 16:53
For the other LLC that you created, you need to make sure you follow related practices to ensure your limited liability status is not removed if you get sued. Ensure your LLC business is separate from you: have a separate bank account for the business, don't commingle personal and business funds, etc. – Vasiliy May 22 '12 at 20:17
Thank you, Vasiliy. It's a retail business and I am still in the web development phase, so I haven't sold anything yet. I'll keep those things in mind though in the future. – nickelpickle May 23 '12 at 11:39
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As Henry states, only you can determine your risk comfort level. For the cost of a LLC or S corp, you get protection and pass through tax benefits - typically for under $500 if you do the work yourself. Whether that is a good deal or not is your decision - you need to do the research yourself. Go buy a nolo book or visit legalzoom and find out for yourself.

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